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*PLEASE NOTE* This site is
for information purposes only - we are not accepting
any new cases from January 2007
Case study The following case
discusses a common situation involving an inappropriate
sale of an endowment policy to a member of the Armed
Forces.
The key factor in this case and many like it was that
the policyholder owned no property and had no need of a
mortgage. The clients in this case were subjected to
what has become known as a "forward sale".
One of the clients was a member of Armed Forces and
was stationed in Germany living in quarters with his
young family.
They were sold an endowment policy even though they
owned no property and had no mortgage. The premise for
the sale was that, like most people, they would at some
point probably obtain a mortgage and purchase a
property.
The salesman sold the endowment on the basis that the
clients could start paying for the mortgage immediately
and long before they actually acquired a property. They
would therefore reduce the mortgage repayment period and
be financially better off by disposing of the mortgage
debt earlier than would otherwise be the case.
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On the one hand you could not argue with the concept
of a savings plan which involved putting money away for
a future property purchase. But on the other hand,
there were far simpler, shorter term savings products
available on the market.
The clients needed a more flexible, cheaper product
that was not subject to heavy up front fees that
swallowed any savings benefits for the first few years.
Over the years it has become accepted that this form
of endowment sale was inappropriate. Recent
adjudications and advice from the Ombudsman confirm that
"forward selling" of endowments was bad practice and
amounted to misselling. Our clients in this
case managed to recover all of their premiums paid up to
the point that they did eventually obtain a mortgage (3
years after the sale). Interest was added to this
amount. They also received a secondary award that
related to the endowment advice itself which was flawed
and subject to further arguments of misselling.
An award was made that reflected the mis-sale and
effectively placed the clients in the same position they
would have been in had they been sold a repayment
mortgage. The total amount recovered by the clients
was £12,660.
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